Australia's wheat exports may prove far lower than officials
are estimating thanks to a sharp loss of competitiveness on world export
markets, as tightening supplies support local prices.

Abares, Australia's official commodities bureau, surprised
many analysts on Tuesday by nudging higher to 22.08m tonnes its forecast for the
newly-harvested domestic wheat crop higher than estimates from many private
analysts closer to 21m tonnes.

However, it caused particular comment in keeping its estimate
for exports at 20.9m tonnes – a number 4.4m tonnes higher than the forecast four
days before from the US Department of Agriculture, whose data set world
benchmarks.

The diminished competitiveness of Australian wheat – down in
part to a harvest which, even after Tuesday's upgrade, was down 26% year on
year – looks set to limit shipments "closer to the USDA number than the Abares
one", Commonwealth Bank of Australia analyst Luke Mathews said.

"Abares' wheat export target may prove overly optimistic."

'Still very large'

Indeed, Mr Mathews stuck by a forecast of 18.0m tonnes, given
that "we had a smaller crop, and an extremely strong export programme last year",
which had curtailed carryover stocks.

Even 18.0m tonnes was
"still very large", given that "until last season, Australia had never exported
more than 20m tonnes before".

The relative tightness in Australia's supplies was reflected
in relatively firm prices.

While wheat in futures in Chicago have fallen 6% on a front-contract
basis so far this year, those in Sydney have stayed flat.

Basis rebound

At port, prices at Geelong on the east coast have recovered
from a discount of nearly Aus$50 a tonne midway through 2012, as the strong
harvest sapped values, to a premium of some $Aus25 a tonne.

At the Western Australia port of Kiwana, wheat prices have
recovered from a small discount to a premium of approaching Aus$75 a tonne.

"What was a bit unusual was that this built earlier than
might be expected, during the harvest," when the onset of extra supplies
typically acts as a weight on values.

Importers turning
elsewhere?

The extent of the decline in Australia's exports is being
closely watched for signs that it could drive buyers elsewhere.

Indeed, Stan Skrypetz, a wheat analyst at Agriculture Canada,
on Thursday noted that many Asian countries, such as Indonesia, Japan,
Philippines, South Korea, Malaysia and Sri Lanka, are being extra Canadian
wheat because of the decline in Australian supplies.

The US on Thursday reported weekly wheat export sales of
706,000 tonnes, the best result bar one in seven months.